The impact of tax business environment on regional innovation: Evidence from China

Building on the implementation of China's reform of “streamlining administration, delegating power, strengthening regulation, and improving services,” this paper explores how the tax business environment influences regional innovation capability. Using panel data from 31 provinces, municipalities directly under the central government, and autonomous regions from 2013 to 2022, the study empirically examines the impact of the tax business environment on regional innovation and analyzes the spatial mediation effect through the mechanism of investment governance. The findings reveal that the tax business environment significantly enhances regional innovation capability, with evident temporal heterogeneity. Moreover, regional development of the tax business environment is shaped by neighboring administrative units, where imbalances in the tax business environment widen regional innovation gaps. Improvements in one region's tax business environment also exert spillover effects on the innovation capacity of other regions. Further analysis indicates that the tax business environment promotes regional innovation through the incentive and capital agglomeration effects of investment behavior. Specifically, investment structure fosters local innovation and supports innovation activities in neighboring regions, whereas investment scale strengthens local innovation but, by influencing local capital availability, constrains innovation spillovers and hampers innovation activities in surrounding areas.